Productivity is the well-spring of Australia’s national wealth. Our ability to improve productivity – in simple terms, to produce more output for a given unit of input – is essential for many of our economic and social aspirations. It raises the rate at which the economy can sustainably grow, increases the competitiveness of our industries, reduces the cost and improves the quality of public services, and enables growth in real wages.

However, Australia’s productivity performance has declined materially in recent years. Productivity growth has traditionally averaged around 1.2% p.a. , but has fallen to only 0.2% in the six years since the start of the pandemic. Many industries, as diverse as construction, education, manufacturing and healthcare, have seen productivity go backwards.

This sudden decline in productivity performance has contributed to many challenges currently facing Australia. It has limited the rate at which the economy can grow without stoking inflation, putting downward pressure on real wages. It has weakened the efficiency of industries key to delivering on national ambitions in housing, clean energy, high technology and more. It has raised the cost of delivering social services, reducing the fiscal sustainability of federal and state budgets while foregoing opportunities to raise service quality.

Returning Australia’s productivity growth to its normal track would greatly aid the achievement of many social and economic objectives. To do so first requires a thorough understanding of how and where productivity performance has declined since the pandemic, what factors have contributed to reduced performance, and how reforms could best target barriers in order to restore conditions of durable productivity growth.

This submission addresses these questions from the perspective of Australian industry – the businesses which are on the frontline of our national productivity crises. It identifies the factors contributing to recent weakness, and the impact of economic and social policy –  across the regulatory, investment, tax, supply chain and workplace domains – which are impinging on our productivty potential. It makes seven recommendations for how policy reforms can help unlock a new cycle of productivity growth in Australia.